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AGCO Upped to Strong Buy on Inorganic Growth

On Jul 2, 2014, Zacks Investment Research upgraded the manufacturer of agricultural equipment AGCO Corporation (AGCO - Free Report) to a Zacks Rank #1 (Strong Buy) based on potential acquisition benefits, a strong cash position and growth in GSI sales in 2014.

Why the Upgrade?

AGCO remains committed to its plan of strategic investments in production facilities and higher technology products. Based on this, the company has agreed to acquire Intersystems Holdings Inc on May 23. This will expand the company’s material handling capabilities.

The buyout will help AGCO to expand its grain handling and storage business in the fast growing off-farm segment. The acquisition is in sync with AGCO’s acquisition, expansion and modernization plans and matches perfectly with its GSI brand.

In the first quarter of 2014, GSI sales were up about 10% which aided North America segment sales to rise 3.7% year over year to $647.5 million in the quarter. However, AGCO’s total sales decreased 2.9% year over year to $2.33 billion in the quarter.

AGCO exited the quarter with cash and cash equivalents of $193.9 million as of Mar 31, 2014. AGCO expanded its share repurchase program to $500 million, which is likely to be completed by mid 2015.

At the earnings call, AGCO reiterated its full-year 2014 earnings per share outlook of approximately $6.00. Net sales guidance has also been maintained in the range of $10.8–$11.0 billion. Second-quarter 2014 earnings per share will be in the range of $1.65 to $1.70.

The company projected GSI sales to be up approximately 10% for full-year 2014 compared with 2013, with most of the growth occurring outside the U.S. In addition, global population growth and changing trends in diet are generating demand for additional grain storage and protein production capacity facilitating growth in the longer term.

These bullish factors led to an upward estimate revision. Over the last 60 days, the Zacks Consensus Estimate for 2014 increased 0.5% to $5.52 per share and for 2015, the same increased 3.8% to $5.24 per share.

Other Stocks to Consider

Some other stocks in the same sector that warrant a look include Kubota Corporation , AO Smith Corp. (AOS - Free Report) and EnerSys (ENS - Free Report) . All these carry a Zacks Rank #1 (Strong Buy).

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